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KBW predicts modest rate increases for P/C insurers in 2013

KBW predicts modest rate increases for P/C insurers in 2013

Modest rate increases but little improvement in underlying underwriting profitability are likely to continue for the property/casualty insurance industry in 2013, according to an analysis released Wednesday by Keefe Bruyette & Woods Inc.

The industry remains overcapitalized despite increased shareholder dividends, share repurchases and increased catastrophe losses, said KBW in “2013 Outlook: More of the Same, Slow Firming Continues.” The report added that KBW expects investment results to be under pressure for the foreseeable future, and “while underlying underwriting results may slowly improve going forward due to modest rate increases that are in excess of loss costs trends, we expect favorable prior-year reserve development to wane.”

The report says the “long-sought-after hard market will remain elusive” until excess capital is eliminated and insurers face balance sheet pressure. While the current firming “should keep things heading in the right direction,” the industry would have to experience significant balance sheet erosion before the market truly hardens.

The report also says underwriting is key to insurers' success in the current environment. “Strong underwriters are able to generate good results regardless of where we are in the underwriting cycle,” said KBW.